Seller’s Costs at Closing and the Affordable Health Care Act

By: Victor Normand
Published: August 2012

It is called a net sheet, and it is an estimate made by the real estate agent of the costs a seller can expect to pay at closing. These costs vary for the most part with the sale price of the property, but they are costs and they are unavoidable. There are also “adjustments” that appear on the settlement statement for items like paying off a mortgage if one exists, proration of paid or unpaid property taxes, condo fees, betterments, assessments, and concessions, but actual costs only include:
• Sales Commissions
• Deed preparation and other legal fees
• Tax Stamps
We will discuss the Affordable Health Care Act surcharge in a moment, but first back to the typical costs to close:

Sales Commissions

The sales commission is an amount agreed to between the seller and the listing broker at the time the listing agreement is entered into, usually a percentage of the final sale price. Although it is “paid” by the seller, the sales commission is actually paid by the buyer as part of the purchase price. The commission “cost” is baked into the sale price of every property.
Every market analysis or appraisal of a property takes into consideration recent sales of similar properties, all of which have a sales commission included in the sale price.
If you have a hard time thinking of the sales commission as an expense to the buyer, consider the mindset of a buyer negotiating with a “For Sale by Owner (FSBO)” seller. It usually isn’t long into the negotiations before the buyer reminds the FSBO seller that they should be prepared to lower the asking price because there is no sales commission as part of the deal. This reinforces the perception that the sales commission is always effectively passed on to the buyer.

Deed Preparation and Other Legal Fees

Not much to say about legal fees except that someone needs to prepare a deed and every seller is advised to have legal counsel reviewing the transaction. Expect to pay less than $1,000 for this.

Tax Stamps

In Massachusetts, the transfer of real estate is assessed a fee of $2.28 for every $500 of sale price. It is paid when the transfer deed is recorded.

Affordable Health Care Act

So, how does the Affordable Health Care Act end up costing home sellers? Like every real estate sale, there could be income tax consequences. Presently, profits above $500,000 for a married couple are exempt from an income tax. Also, an inheritance tax exemption exists, though the limits may change after January 1, 2013, decreasing from the current $5,120,000 to $1,000,000.
The new tax, which is part of the recently affirmed 2010 Health Care law, taxes investment income, including profits from the sale of a personal residence. The tax does not apply to profits below $500,000 and only applies to tax payers with Gross Adjusted Income above $250,000. But for some sales, particularly for homes in high priced areas that have been owned for many years, the 3.8% surcharge could come as a big surprise. The tax goes into effect on January 1, 2013.
Since every seller has different levels of tax liability, a discussion with a tax accountant is advised, especially if it might be possible to move the sale up and close before the first of the year.
The basic costs to home sellers at closing are readily calculated; federal and state tax implication on the other hand need a very close look by an experienced professional.